ARTICLE 12-Definition of State

In a series of judgments, the Supreme Court of India has deliberated upon “tests” for the

determination of State; the underlining principle being, functional, financial and administrative

domination coupled with deep and pervasive control.

In the case of Ajay Hasia v. Khalid Mujib Sehravardi1, the Constitution Bench of the Apex Court

relied upon the “test” formulated in the case of R.D. Shetty v. International Airport Authority of

India2 , for the determination of State. The following test was formulated in R.D. Shetty:

 (i). If the entire share-capital of the body is held by the government, it goes a long way

indicating that the body is an instrumentality of the government;

 (ii). Where the financial assistance rendered by the government is so substantial, so as to

meet almost the entire expenditure of the body, it is indicative of the fact that the body is

impregnated with “governmental character”;

 (iii). If the body enjoys, “monopoly status” which is State conferred or State protected, it

is indicative of the fact that the body is within the periphery of Article 12;

 (iv). Existence of deep and pervasive control of the government, qua the functioning of

the body, affords an indication that the body is State instrumentality;

 (v). If the functions performed by the body are of public nature, public character or public

importance, and are closely related to governmental functions, it is a relevant factor to

treat the body as an instrumentality of the State.

1
AIR 1981 SC 487
2
AIR 1979 SC 1628
In the case of, Pradeep Biswas v. Indian Institute of Chemical Biology3, a Seven-Judges Bench

of the Apex Court laid down the following test for the determination of “State‟:

 (i). The test formulated in the case of Ajay Hasia v. Khalid Mujib Sehravard , is not rigid

in principle that needs to be complied with in all cases without exception, to determine,

whether or not, a body (or authority) is a State;

 (ii). All cases are to be determined in the light of their respective cumulative facts, that is

to see, whether or not, a body (or authority) is financially, functionally and

administratively dominated by, or is under the control of, the government;

 (iii). the control should not be perfunctory, but it should rather be deep and pervasive;

 (iv). If the control is mere regulatory under a statute (or otherwise), then the body (or

authority) cannot be termed as a State under the aegis of Article 12.

Complementing the decision rendered in the Pardeep Kumar Biswas (supra), the Supreme Court

in G. Bassi Reddy v. International Crops Research Institute 4, held that, the International Crops

Research Institute (ICRI) is not a State within the meaning of Article 12 of the Constitution of

India, 1950, as it has been set up as a non-profit research and training centre to help developing

countries to alleviate rural poverty (and hunger); ICRI is neither set up by the government, nor is

controlled (or is accountable) to the government, and hence it is outside the sweep of Article 12

of the Constitution of India, 1950.

3
(2002) 5 SCC 111
4
AIR 2003 SC 1764.
 ANALYSIS

The very first ingredient that enables any company to fall under the ambit of “State” is the entire

share capital of the company is regulated by the government. In our case, LIC being a state

owned company is holding only 25% shares in the company. This does not enable the LIC to act

as body that regulates and allots shares of the Company. It is mere a shareholder like others.

Secondly, the Company holds 75%(subject to verification) with themselves. The LIC shares are

not alone the substantial financial assistance to the Company. Company’s expenditure is not

dependent on the LIC. Moreover, all the powers of decision making are taken independently and

is influenced by LIC of any governmental nature. (The Memorandum of Association clearly

highlights that………….. is). Thirdly, the question arises, whether government through LIC

controls the management of the company, whether the documents and other Articles of

Association highlights the role of government in the internal management of the company,

whether the shareholder of the company buys shares under the impression of company being

government influenced company. If the Company takes decision independently without being

affected by any shareholders then it cannot fall under the ambit of “ State”.

The functions of the company are to ………

In the case Pradeep Biswas v. Indian Institute of Chemical Biology is clealy states that If the

control is mere regulatory under a statute (or otherwise), then the body (or authority) cannot be

termed as a State under the aegis of Article 12. Even if LIC takes part in the management and

helps in the regulation of company then also the company stands financially and functionally
independent. On the other hand Supreme Court in G. Bassi Reddy v. International Crops

Research Institute5, held that, the International Crops Research Institute (ICRI) is not a State

within the meaning of Article 12 of the Constitution of India, 1950, because it has been set –up

with the objectives of…….. neither it is set up by the government, nor is controlled to the

government, and hence it is outside the sweep of Article 12 of the Constitution of India, 1950.

5
AIR 2003 SC 1764.